How to Form an LLC in California (Despite the $800 Tax)

California is the largest economy in the United States and home to more startups than any other state. But forming an LLC here comes with a catch that surprises many new business owners: an $800 annual franchise tax that kicks in regardless of whether your business earns a single dollar.

Despite this cost, California remains a top state for LLC formation — and for good reason. If you live and do business in California, forming your LLC here is almost always the right move. Here is everything you need to know.

The $800 Franchise Tax Explained

California's Franchise Tax Board (FTB) charges every LLC registered in the state a minimum annual franchise tax of $800. This applies to:

• LLCs formed in California
• Foreign LLCs registered to do business in California
• LLCs that earn zero revenue
• LLCs that lose money

The tax is due on the 15th day of the 4th month after your LLC is formed, and then annually by April 15. So if you form your LLC in January, your first $800 payment is due by April 15 of that same year.

First-Year Exemption (Sort Of)

California passed AB 85, which exempted LLCs from the $800 minimum franchise tax for their first taxable year — but only for LLCs formed between January 1, 2021 and January 1, 2024. As of 2026, this exemption has expired. New LLCs now owe the full $800 in their first year.

Additional Fees Based on Revenue

Beyond the $800 minimum, California charges an additional LLC fee based on total income from California sources:

This fee is based on total income, not profit. That distinction matters — even if your business loses money, you could owe extra fees if gross revenue exceeds $250,000.

Step-by-Step: Forming a California LLC

1. Choose a name. Your LLC name must be distinguishable from existing California business entities. Check availability at the California Secretary of State's website. The name must include "LLC" or "Limited Liability Company."
2. File Articles of Organization (Form LLC-1). File online at bizfile.sos.ca.gov. The filing fee is $70.
3. Designate a registered agent. Also called an "agent for service of process" in California. Must have a physical California address.
4. File a Statement of Information (Form LLC-12). Due within 90 days of formation and every two years after. Filing fee is $20.
5. Get an EIN. Apply for free at IRS.gov. You need this for taxes, hiring, and opening a bank account.
6. Create an operating agreement. Not legally required in California but strongly recommended. It defines ownership, management, and operating procedures.
7. Pay the franchise tax. Register with the Franchise Tax Board and submit your $800 payment.

Timing Strategy: When to Form

Since California's franchise tax is based on the taxable year, forming your LLC in the last quarter (October–December) means you still owe $800 for that year — even if you only existed for a few weeks. However, you won't owe the next $800 until April 15 of the following year.

If you are not ready to launch immediately, consider waiting until January to form. This delays your first $800 payment by several months compared to forming in, say, November.

Should You Form in Another State Instead?

Some websites suggest forming in Wyoming or Nevada to avoid California's franchise tax. This is almost always bad advice for California residents. Here is why:

• If you live or do business in California, you must register as a foreign LLC in California regardless of where you formed.
• Foreign LLC registration in California triggers the exact same $800 franchise tax.
• You would also owe annual fees in your formation state (Wyoming: $60/yr, Nevada: $350/yr).
• You are now paying two states instead of one and managing compliance in both.

The only scenario where out-of-state formation makes sense is if you have no physical presence in California and no California-sourced income. For most California residents, form in California.

California LLC Tax Overview

California LLCs are subject to:

• $800 minimum franchise tax (annual)
• Gross receipts fee (if income exceeds $250K)
• State income tax (pass-through to members, taxed at individual rates up to 13.3%)
• Federal taxes (pass-through unless you elect S-Corp or C-Corp taxation)

California does not have a separate LLC tax rate. Instead, LLC income passes through to your personal return and is taxed at your marginal rate.

The Bottom Line

Yes, $800 per year is steep — especially for a side hustle or early-stage business. But if you operate in California, you are subject to this tax whether you form here or elsewhere. The key is to plan for it, time your formation strategically, and ensure your business generates enough value to justify the cost.

At Sedes, we handle the entire California LLC formation process — Articles of Organization, EIN filing, operating agreement, and registered agent — starting at $29 plus the $70 state filing fee. We also make sure you understand the franchise tax obligation upfront, because nobody should be surprised by an $800 bill.